Tencent Sales Jump 61%, Defying Law of Large Numbers

Tencent Holdings is defying the law of large numbers, posting accelerating revenue growth and topping the most optimistic of analyst estimates.

The owner of WeChat, the social network that is nearly ubiquitous in China, reported a 61 percent rise in third-quarter sales. Fueled by advertising and hit game "Honour of Kings," the growth was the fastest since 2010, when revenue was a mere one-fourteenth of its current level.

By getting WeChat onto almost a billion smartphones in China, Tencent has leveraged the instant message service into an entertainment and gaming platform that is driving advertising sales. Although the Shenzhen-based company remains largely absent overseas, it's built a 12 percent stake in Snapchat-owner Snap Inc. and is exploring new sources of growth in the cloud, financial services, movies and music.

"We don't see any signs of slow down or deterioration for next quarter or 2018," said Naoshi Nema, an analyst at Cantor Fitzgerald in Hong Kong. "Mobile games growth is strong and the company is hitting pay dirt in areas of payments, cloud and on-demand video subscription."

Sales for the quarter were $9.8 billion. Revenues from the online ads business increased by 48 percent to nearly $1.7 billion third quarter on a year-on-year basis. Net income surged 69 percent to $2.7 billion.

WeChat had 980 million monthly active users, up almost 16 percent from the previous year and now sending 38 billion messages daily. But the mobile version of QQ, Tencent's other mainstay social network, had 2.5 percent fewer users at the end of the quarter.

The success of "Honour of Kings" helped expand smartphone gaming revenue by 84 percent in the period. While the game was recently dethroned from the top of China's iOS store, Tencent has a full pipeline of titles for 2018 that includes several from South Korean developers that were held back amid political tensions with China.

The company's first two survival games, "Glorious Mission" and "Crossfire," have each had more than 20 million pre-registrations with the Deserted Island title to launch this month.

"Games will be still be a key revenue contributor going forward," said Benjamin Wu, an analyst at Shanghai-based consultancy Pacific Epoch. "Its key title 'Honour of Kings' is looking to sustain its gross revenue to the next year."

Investors bet earlier in 2017 that some of the company's boldest investments would finally pan out, adding about $230 billion of market value and creating one of the world's most richly valued companies.